SAN FRANCISCO (KGO) — A coalition of consumer groups is asking the federal government to take a hard look at the lending practices of San Francisco-based Wells Fargo bank. They’re especially concerned about a program they claim is like a payday loan product. One woman compares her experience to a “debt trap.”
Wells Fargo prefers to call its program a Direct Deposit Advance. The charge is a $1.50 for every $20 borrowed. Your loan must be paid in full when your next paycheck arrives. So if you get paid every two weeks, the fee on the 14-day loan is the equivalent of an annual percentage rate of more than 180 percent. A 30 day loan is 91 percent.
Annette Smith of Rocklin in the Sacramento area needed to pay for smog repairs and registration on her truck. She didn’t have the money. So she went to her bank, Wells Fargo, and wouldn’t give her a traditional loan, but suggested instead she might want to utilize a Wells Fargo program called Direct Deposit Advance.
“I didn’t have to have collateral. I didn’t have to have a credit check and I felt that that was a good service, you know,” said Smith.
Wells Fargo let her borrow up to $500. The catch was she had to tie the loan to her monthly direct deposit from social security. As soon as her next check was deposited, Wells Fargo would automatically debit the full loan amount, plus a fee of $37.50.
“My only alternative was to borrow again,” said Smith.
I don’t know how much Smith makes every month, but her social security check is her only source of income, so that’s around $1,000. The loan amount was $500 and the fee was $37.50. That leaves her just $462.50 cents for food, rent and utilities for the rest of the month.
“You’re suddenly in a position where you can’t make your other expenses, you take out another loan and that cycle goes on and one and on,” said Andrea Luquetta with the California Reinvestment Coalition.